Stock market is boring

Discussion in 'Trading' started by stock_trad3r, Mar 27, 2008.

  1. Since Early Jan markets have been in a pretty tight trading range.

    I'm long only in Visa stock @ $59.5 and plan to buy more eventually.

    Najarian from fast money is kinda a putz. He says go long on some stock and buy the puts. Um yea...except if the stock goes up the puts will expire worthless and your returns are lessened. If the stock drops you would need a lot of puts to mitigate the loss of a large long position. Either way there is no free lunch.
  2. Trader's market, trending to the downside despite low volume rallies - that trend is intact.
  3. This is probably gonna be a repeat of the 2004-2005 market slump where no major gains were made.

    Between jan 2004 and late 2005 the market made little advance, but then in 2006 the market began to surge all the way till October 2007 when things suddenly changed due to a fake credit crisis and a fake recession.
  4. This is why I have been using DBL Diag option trades to profit from the lack of movement. Iron Condors can also be nice trades in this market.

    Look at Puts as a form of insurance. Just like your car insurance, you buy the policy and if you don't wreck your car it expires worthless. If you do wreck your car you'll be damn glad you bought the insurance.

    Really though, protective puts only make sense on swing/position trades where you expect the stock to move in your favor by at least twice the premium of the put OR there is a chance that the price might gap down through where you would otherwise set a stop loss. As far as how many you need, it's 1 contract per 100 shares. You would only need 20 contracts to control 2000 shares. I don't think thats a lot and I don't see many non-institutions trading in much more bulk than 2k shares.

    Another idea is if you own the stock and are only looking for a set gain you could write a call option at the strike you would be willing to sell at, and use the proceeds to fund or partially fund the protective put. Otherwise known as a collar trade. No it's not a free lunch but it is a reduced lunch.
  5. First Solar(FSLR) has been making some nice +50 point swings for me.